Shares of Medallion Financial were up more than 16% in pre-market trading on Monday after Barron’s said the stock was a buy over the weekend.
Medallion, which finances taxi medallions in New York and other major cities, has seen shares fall about 60% from their all-time high over the last couple years as the price of taxi medallions has declined.
Economist Mark Perry has called this the “Uber Effect.”
But in a report over the weekend, Barron’s said the decline in the stock has been overdone.
In part, Barron’s thinks the selling in the stock is overdone because while its taxi medallion portfolio has garnered much of the attention from investors, it accounts for only 51% of the company’s portfolio and just 19% of its interest income.
64% of Medallion’s earnings, Barron’s noted, came from consumer loans, and one portfolio manager told Barron’s “People have certainly overestimated the trouble Medallion is in… This Uber thing is overdone. Uber isn’t going to drives taxis out of business. It’s both — not either/or.”
Barron’s also noted that 15% of Medallion shares are being sold short, or bet that the price will fall. When investors bet against a stock, they borrow shares in hopes of buying them back at lower prices and pocketing the difference.
But when you’re betting against a stock you have to pay out the dividend to shareholders you borrow shares from, and one analyst told Barron’s that some could get squeezed out of their positions as Medallion’s $US0.25/share dividend comes due.
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